Zynex(ZYXI) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes, offering a detailed view of the company's financial position and performance Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flow statements, and statements of stockholders' equity, along with detailed notes. Key financial highlights include a significant decrease in cash and cash equivalents, a shift from net income to substantial net losses, and a working capital deficit, primarily driven by the Tricare payment suspension and increased current portion of convertible senior notes Condensed Consolidated Balance Sheets This section presents the company's financial position at specific points in time, detailing assets, liabilities, and equity | Metric | June 30, 2025 (unaudited) (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------------------- | :------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $17,543 | $39,631 | $(22,088) | -55.7% | | Accounts receivable, net | $10,345 | $18,022 | $(7,677) | -42.6% | | Total current assets | $45,600 | $75,179 | $(29,579) | -39.3% | | Total assets | $85,935 | $122,079 | $(36,144) | -29.6% | | Current portion of convertible senior notes | $59,074 | $0 | $59,074 | N/A | | Total current liabilities | $73,859 | $16,864 | $56,995 | 337.9% | | Total liabilities | $84,674 | $86,371 | $(1,697) | -2.0% | | Total stockholders' equity | $1,261 | $35,708 | $(34,447) | -96.5% | Unaudited Condensed Consolidated Statements of Income (Loss) This section details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total net revenue | $22,290 | $49,883 | $48,868 | $96,414 | | Income (loss) from operations | $(10,283) | $2,226 | $(23,380) | $2,751 | | Net income (loss) | $(20,033) | $1,217 | $(30,429) | $1,227 | | Basic EPS | $(0.66) | $0.04 | $(0.98) | $0.04 | | Diluted EPS | $(0.66) | $0.04 | $(0.98) | $0.04 | - Net revenue decreased by 55.3% for the three months ended June 30, 2025, and by 49.3% for the six months ended June 30, 2025, compared to the same periods in 2024, primarily due to the Tricare payment suspension and decreased device orders[11][143] - The Company reported a significant net loss of $20.0 million for the three months and $30.4 million for the six months ended June 30, 2025, a substantial decline from net income of $1.2 million in both comparable periods of 2024[11][139] Unaudited Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(16,703) | $3,202 | | Net cash (used in) investing activities | $(197) | $(290) | | Net cash (used in) financing activities | $(5,188) | $(16,595) |\ | Net decrease in cash | $(22,088) | $(13,683) | | Cash and cash equivalents at end of period | $17,543 | $30,896 | - Operating activities shifted from providing $3.2 million in cash in H1 2024 to using $16.7 million in H1 2025, primarily due to lower net income from the Tricare payment suspension[13][161] - Cash used in financing activities decreased from $16.6 million in H1 2024 to $5.2 million in H1 2025, mainly due to reduced treasury stock purchases[13][163] Unaudited Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity accounts, including common stock, additional paid-in capital, treasury stock, and retained earnings | Stockholders' Equity (in thousands) | December 31, 2024 | June 30, 2025 | | :---------------------------------- | :---------------- | :------------ | | Common Stock Amount | $32 | $30 | | Additional Paid-in Capital | $93,088 | $94,009 | | Treasury Stock | $(87,186) | $(92,123) |\ | Retained Earnings (deficit) | $29,774 | $(655) | | Total Stockholders' Equity | $35,708 | $1,261 | - Total stockholders' equity significantly decreased from $35.7 million at December 31, 2024, to $1.3 million at June 30, 2025, primarily due to a net loss of $30.4 million and treasury stock purchases[14][139] - Retained earnings shifted to a deficit of $0.7 million at June 30, 2025, from positive retained earnings of $29.8 million at December 31, 2024, reflecting the net losses incurred[14] Unaudited Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements (1) BASIS OF PRESENTATION This note describes the company's business operations, recent significant events, and management's going concern assessment - Zynex, Inc. operates primarily in one business segment: medical devices, including electrotherapy and pain management products, marketed in the U.S. and subject to FDA regulation[16][18] - The Company's Zynex Monitoring Solutions, Inc. (ZMS) subsidiary received FDA approval for a fluid monitoring system in 2020 and is developing laser-based patient monitoring technology (NiCO™ and HemeOx™), with a 510(k) application submitted for NiCO™ in Q2 2025[16][17] - Tricare, historically representing 20-25% of annual revenue, temporarily suspended payments in Q1 2025 due to alleged misrepresentation of billing and diagnoses, leading to a full reserve on related receivables as of June 30, 2025[20][21] - The Company implemented workforce reductions in Q1 and Q2 2025, affecting 15% and 14% of employees respectively, anticipating approximately $40.0 million in annualized cost savings[24][25] - The SEC initiated an investigation in June 2025, requesting documents to determine potential federal securities law violations, with the Company cooperating[26] - Management concluded that substantial doubt exists about the Company's ability to continue as a going concern for the next 12 months, citing net losses, reduced cash, and dependence on refinancing convertible senior notes or securing additional financing[27][28] (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and segment reporting - Revenue is recognized when performance obligations are met upon product delivery to the patient, with estimates for third-party payer reimbursement deductions and uncollectible accounts based on historical rates and current relationships[43][46] Disaggregated Net Revenues (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Device revenue | $11,034 | $15,920 | $22,932 | $29,945 | | Supplies revenue | $11,256 | $33,963 | $25,936 | $66,469 | | Total revenue | $22,290 | $49,883 | $48,868 | $96,414 | - The Company operates as one primary business segment (medical devices), with device and supply revenues not considered separate segments as they share sales channels and are interdependent[55] - The Company adopted ASU 2023-09, 'Improvements to Income Tax Disclosures,' in Q1 2025, with disclosures to be presented in the 2025 annual report[63] (3) FAIR VALUE OF FINANCIAL INSTRUMENTS This note explains how the fair value of financial assets and liabilities is determined and classified within a three-level hierarchy - The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to their short maturities[64] - The Company classifies financial instruments using a three-level hierarchy based on the observability of inputs, maximizing the use of observable inputs[65] (4) INVENTORY This note provides a breakdown of inventory components and changes over the reporting period Inventory Components (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Raw materials | $5,146 | $5,525 | | Work-in-process | - | $143 | | Finished goods | $6,016 | $7,085 | | Inventory in transit | $1,203 | $1,320 | | Less: reserve | $(154) | $(154) | | Total inventory | $12,211 | $13,919 | - Total inventory decreased from $13.9 million at December 31, 2024, to $12.2 million at June 30, 2025, primarily due to reductions in finished goods and raw materials[67] (5) PROPERTY AND EQUIPMENT This note details the company's property and equipment, including cost, accumulated depreciation, and depreciation expense Property and Equipment, Net (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Total property and equipment at cost | $6,838 | $6,600 | | Less accumulated depreciation | $(3,976) | $(3,516) |\ | Total property and equipment, net | $2,862 | $3,084 | - Total depreciation expense related to property and equipment was $0.3 million for Q2 2025 (vs. $0.2 million in Q2 2024) and $0.6 million for H1 2025 (vs. $0.4 million in H1 2024)[69] - Depreciation expense for leased devices, reflected as cost of revenue, was $0.3 million for Q2 2025 (vs. $0.5 million in Q2 2024) and $0.6 million for H1 2025 (vs. $0.9 million in H1 2024)[70] (6) GOODWILL AND OTHER INTANGIBLE ASSETS This note provides information on goodwill and other intangible assets, including their carrying amounts and amortization schedules - Goodwill remained unchanged at $20.4 million as of June 30, 2025, with no impairment indicators[71] Intangible Assets (Acquired Patents) (in thousands) | Metric | December 31, 2024 | June 30, 2025 | | :------------------------- | :---------------- | :------------ | | Gross Carrying Amount | $10,000 | $10,000 | | Accumulated Amortization | $(2,753) | $(3,203) |\ | Net Carrying Amount | $7,247 | $6,797 | | Weighted Average Remaining Life (years) | 8.00 | 7.50 | Estimated Future Amortization Expense (in thousands) | Period | Amount | | :----------------------------------- | :----- | | July 1, 2025 through December 31, 2025 | $458 | | 2026 | $908 | | 2027 | $908 | | 2028 | $911 | | 2029 | $908 | | Thereafter | $2,704 |\ | Total future amortization expense | $6,797 | (7) EARNINGS (LOSS) PER SHARE This note details the calculation of basic and diluted earnings per share, including factors affecting anti-dilutive securities Basic and Diluted EPS (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(20,033) | $1,217 | $(30,429) | $1,227 | | Basic weighted average shares outstanding | 30,258 | 31,762 | 30,927 | 32,053 | | Basic earnings (loss) per share | $(0.66) | $0.04 | $(0.98) | $0.04 | | Diluted weighted-average shares outstanding | 30,258 | 32,204 | 30,927 | 32,516 | | Diluted earnings per share (loss) | $(0.66) | $0.04 | $(0.98) | $0.04 | - For both the three and six months ended June 30, 2025, diluted loss per share was computed on the same basis as basic loss per share due to the anti-dilutive effect of potential common shares[76] - Conversion options for 5.6 million shares from the 2023 Convertible Senior Notes were excluded from diluted EPS calculations for both periods in 2025 and 2024 as they were anti-dilutive[77] (8) CONVERTIBLE SENIOR NOTES This note provides details on the company's convertible senior notes, including principal amount, interest rate, conversion terms, and future interest payments - The Company has $60.0 million aggregate principal amount of 5.00% Convertible Senior Notes due May 15, 2026, with unamortized issuance costs of $0.9 million as of June 30, 2025[78][79] - The notes are convertible at a rate of 92.8031 shares of common stock per $1,000 principal amount (approximately $10.78 per share) and can be settled in cash, common stock, or a combination[83] Minimum Interest Payments (in thousands) | Year | Amount | | :--- | :----- | | 2025 | $1,500 |\ | 2026 | $1,500 | (9) STOCK-BASED COMPENSATION PLANS This note describes the company's stock-based compensation plans, including outstanding options, restricted stock grants, and related expenses - The Company had 0.3 million stock options outstanding and exercisable at June 30, 2025, with no new stock option awards granted in Q2 or H1 2025 or 2024[88][89] - 0.1 million and 0.2 million shares of restricted stock were granted in Q2 and H1 2025, respectively, under the 2017 Stock Plan[88] Stock-Based Compensation Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of Revenue | $11 | $9 | $21 | $17 | | Sales and marketing expense | $81 | $207 | $156 | $367 | | General, and administrative | $467 | $625 | $959 | $1,191 | | Total | $559 | $841 | $1,136 | $1,575 | - As of June 30, 2025, $3.0 million of unrecognized compensation expense related to stock options and restricted stock awards is expected to be recognized over a weighted average period of approximately 2.3 years[91] (10) STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including stock repurchase programs and related party transactions - The Company completed a $20.0 million stock repurchase program in Q1 2024, purchasing 887,820 shares at an average price of $11.73[92] - A subsequent $20.0 million repurchase program, approved in March 2024, expired on March 4, 2025, with 423,894 shares purchased for $5.2 million at an average price of $12.29[93] - On March 13, 2025, the Company purchased 1,700,000 shares of common stock from CEO Thomas Sandgaard for $4.9 million at $2.905 per share, approved by the disinterested Board and Audit Committee[94][111] (11) INCOME TAXES This note explains the company's income tax expense, effective tax rate, and the establishment of a valuation allowance for deferred tax assets - The Company's effective income tax rate was (22%) for the six months ended June 30, 2025, compared to 25% for the same period in 2024, primarily due to a valuation allowance related to deferred tax assets and changes in income (loss) from operations[97] - Income tax expense was $8.9 million for Q2 2025 and $5.5 million for H1 2025, significantly higher than $0.4 million for both periods in 2024, largely due to a $6.8 million and $7.0 million valuation allowance charge, respectively[96][97] - A valuation allowance was established for deferred income tax assets as of June 30, 2025, due to reductions in future profitability estimates and substantial doubt about the Company's ability to continue as a going concern[98] (12) LEASES This note provides information on the company's operating and finance lease liabilities, including weighted average rates, remaining terms, and future minimum payments - The Company's weighted average borrowing rate for operating lease liabilities was 4.91%, and for finance lease liabilities was 4.79% as of June 30, 2025[102] - The weighted average remaining lease term was 2.90 years for operating leases and 3.70 years for finance leases as of June 30, 2025[102] Future Minimum Lease Payments (in thousands) | Period | Operating Lease Liability | Finance Lease Liability | | :----------------------------------- | :------------------------ | :---------------------- | | July 1, 2025 through December 31, 2025 | $2,352 | $231 | | 2026 | $4,509 | $312 | | 2027 | $4,319 | $264 | | 2028 | $2,193 | $171 | | 2029 | — | $121 | | Total undiscounted future minimum lease payments | $13,373 | $1,099 | (13) CONCENTRATIONS This note discusses significant concentrations of risk related to suppliers and customers - For Q2 2025, approximately 67% of electrotherapy product supplies were sourced from four significant vendors, an increase from 49% from three vendors in Q2 2024[104] - For H1 2025, approximately 45% of electrotherapy product supplies were sourced from three significant vendors, compared to 40% from three vendors in H1 2024[105] - As of June 30, 2025, and December 31, 2024, no single third-party payer accounted for over 10% of the net accounts receivable balance[105] (14) COMMITMENTS AND CONTINGENCIES This note outlines the company's legal proceedings and potential loss contingencies - The Company is not currently a party to any material pending legal proceedings that would give rise to potential loss contingencies[109] - The Company is cooperating with voluntary document requests from the SEC regarding an investigation into potential federal securities law violations, the outcome of which cannot be predicted[110] (15) RELATED PARTIES This note describes transactions involving related parties, specifically a stock purchase from the CEO - On March 13, 2025, the Company purchased 1,700,000 common shares from Thomas Sandgaard, Chairman, President, and CEO, for $4.9 million at the closing market price of $2.905 per share[111] - The disinterested Board and Audit Committee approved the transaction, deeming it in the Company's best interest due to perceived undervaluation of stock and a good use of funds, considering cash position, alternative uses, and potential impact on EPS and book value[112] (16) SUBSEQUENT EVENTS This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - Steven Dyson was appointed CEO, effective August 18, 2025, succeeding Thomas Sandgaard, who will remain Chairman and Chair of the Technology Committee[113][114] - Mr. Dyson's employment agreement includes an initial annual base salary of $750,000, eligibility for a 100% discretionary bonus, and a success fee upon a change of control[115] - CFO Dan Moorhead notified the Company of his resignation, effective August 29, 2025, with plans for a consulting agreement to assist with transition[117][118] - The 'One Big Beautiful Bill Act' (OBBBA) was signed into law on July 4, 2025, restoring 100% bonus depreciation and introducing immediate expensing of R&E expenditures, with the Company evaluating its impact for Q3 2025 but not expecting a material effect[120][121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the quarter ended June 30, 2025. It highlights a significant decline in net revenue and a shift to net losses, primarily attributed to the temporary Tricare payment suspension and workforce reductions. The Company's liquidity has deteriorated, raising substantial doubt about its ability to continue as a going concern, necessitating potential refinancing of convertible senior notes or securing additional capital General This section provides an overview of the company's business segments and product development initiatives - Zynex, Inc. operates in one primary business segment: medical devices, including electrotherapy and pain management products, through its active subsidiaries Zynex Medical, Inc. (ZMI) and Zynex Monitoring Solutions, Inc. (ZMS)[126] - ZMS, which acquired Kestrel Labs, Inc. in December 2021, is developing laser-based patient monitoring technology, including the NiCO™ CO-Oximeter (510(k) application submitted in Q2 2025) and HemeOx™[127] Recent Developments This section summarizes key events and changes impacting the company, including personnel changes, workforce reductions, and regulatory investigations - CFO Dan Moorhead resigned, effective August 29, 2025, with plans for a consulting agreement to aid transition[129][130] - Steven Dyson was appointed CEO, effective August 18, 2025, succeeding Thomas Sandgaard, who will remain Chairman[132] - The Company reduced its workforce by 86 corporate roles (14% of employees) on June 18, 2025, expecting $5 million in annualized cost savings[134] - The SEC requested documents in June 2025 for an investigation into potential federal securities law violations, with the Company cooperating[135] - Tricare's temporary payment suspension, initiated in Q1 2025 due to alleged billing misrepresentations, continued into Q2 2025, significantly impacting revenue[136][137] RESULTS OF OPERATIONS This section analyzes the company's financial performance, focusing on revenue, expenses, and profitability trends Summary This summary provides an overview of key financial performance metrics, highlighting significant changes in revenue and net income (loss) Key Financial Performance (in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------ | :------ | :------ | :------ | :------ | | Net Revenue | $22.3 | $49.9 | $48.9 | $96.4 | | Net Income (Loss) | $(20.0) | $1.2 | $(30.4) | $1.2 | | Cash from Operating Activities | $(16.7) | $3.2 | $(16.7) | $3.2 | - Net revenue decreased by $27.6 million (55.3%) for Q2 2025 and $47.5 million (49%) for H1 2025 compared to the prior year, primarily due to the Tricare payment suspension and a 12-20% decrease in device orders[138][143] - The Company experienced a net loss of $20.0 million in Q2 2025 and $30.4 million in H1 2025, a significant reversal from net income of $1.2 million in the comparable 2024 periods[139] Net Revenue This section analyzes the factors contributing to changes in the company's total net revenue, including the impact of payment suspensions and order declines - Net revenue decreased by $27.6 million to $22.3 million for Q2 2025 and by $47.5 million (49%) to $48.9 million for H1 2025, primarily due to the temporary Tricare payment suspension and a decline in device orders[143] - During the Tricare payment suspension, the Company is required to fulfill new prescriptions and existing patient supply orders[143] Device Revenue This section examines the trends and drivers behind changes in the company's device revenue - Device revenue decreased by $4.9 million (31%) to $11.0 million for Q2 2025 and by $7.0 million (23%) to $22.9 million for H1 2025[144][145] - The decline in device revenue is attributed to the Tricare payment suspension ($1.6 million in Q2 2025, $2.8 million in H1 2025), slightly lower collection rates, and a 20% (Q2) / 12% (H1) decrease in device orders due to sales force reduction[144][146] Supplies Revenue This section analyzes the factors influencing changes in the company's supplies revenue - Supplies revenue decreased by $22.7 million (67%) to $11.3 million for Q2 2025 and by $40.5 million (61%) to $25.9 million for H1 2025[147][148] - The decrease in supplies revenue is primarily due to the Tricare payment suspension ($11.2 million in Q2 2025, $19.6 million in H1 2025) and a smaller patient base resulting from slowing order growth and sales force trimming[147][148] Operating Expenses This section provides an overview of the company's operating expenses, including cost of revenue, sales and marketing, and general and administrative expenses Cost of Revenue – Devices and Supplies This section analyzes the cost of revenue for devices and supplies, including changes in absolute terms and as a percentage of revenue - Cost of revenue decreased by $2.9 million (29%) to $7.1 million for Q2 2025 and by $3.8 million (20%) to $15.4 million for H1 2025, driven by lower orders and fewer products shipped[149][150][151] - As a percentage of revenue, cost of revenue increased to 32% for both Q2 and H1 2025, up from 20% in the comparable 2024 periods, due to the overall decrease in revenue[149][150][151] Sales and Marketing Expense This section examines trends in sales and marketing expenses, including the impact of sales force reductions and changes as a percentage of revenue - Sales and marketing expense decreased by $10.4 million (45%) to $12.8 million for Q2 2025 and by $16.9 million (36%) to $29.8 million for H1 2025, primarily due to lower employee compensation from decreased sales force headcount[153][154] - As a percentage of revenue, sales and marketing expense increased to 57% for Q2 2025 (from 47% in Q2 2024) and 61% for H1 2025 (from 48% in H1 2024), mainly due to the decreased revenue[153][155] General and Administrative Expense This section analyzes general and administrative expenses, including the impact of headcount reductions and professional fees, and their proportion to revenue - General and administrative expense decreased by $1.9 million (12%) to $12.7 million for Q2 2025 and by $0.7 million (3%) to $27.1 million for H1 2025, mainly due to lower headcount in billing and corporate departments, partially offset by increased professional fees[156][157][158] - As a percentage of revenue, general and administrative expense increased to 57% for Q2 2025 (from 29% in Q2 2024) and 55% for H1 2025 (from 29% in H1 2024), primarily due to decreased revenue[156][157][158] Income Taxes This section discusses the company's income tax rates and expenses, highlighting the impact of valuation allowances - The effective income tax rate was (80%) for Q2 2025 and (22%) for H1 2025, compared to 25% for both periods in 2024[159] - Income tax expense was $8.9 million for Q2 2025 and $5.5 million for H1 2025, significantly higher than $0.4 million for both periods in 2024, largely due to discrete valuation allowance charges of $27.2 million[159] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to meet its financial obligations, detailing cash position, operating cash flows, and going concern considerations - As of June 30, 2025, the Company's liquidity consisted of $17.5 million in cash and cash equivalents and $10.3 million in accounts receivable[160] - Net cash used in operating activities was $16.7 million for H1 2025, a decrease from $3.2 million provided in H1 2024, primarily due to lower net income resulting from the Tricare payment suspension[161] - Net cash used in financing activities decreased to $5.2 million for H1 2025 from $16.6 million in H1 2024, mainly due to reduced treasury stock purchases[163] - The Company's ability to continue as a going concern is dependent on obtaining creditor consent, refinancing convertible senior notes, or securing necessary financing, as substantial doubt exists[27][28][184][185] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section refers to the company's critical accounting policies and estimates as detailed in its annual report - The Company's critical accounting policies and estimates are discussed in detail in its Annual Report on Form 10-K for the year ended December 31, 2024[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk to report for the period - No quantitative and qualitative disclosures about market risk are applicable for this reporting period[166] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in Information Technology General Controls (ITGCs). A remediation plan is being developed, and despite the weakness, the financial statements are fairly presented Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures as assessed by management - Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of June 30, 2025[167] Material Weakness in Internal Control This section identifies a material weakness in internal control over financial reporting and its implications for financial statement accuracy - A material weakness was identified related to Information Technology General Controls (ITGCs) not being effectively designed and operated to ensure appropriate identification, testing, authorization, and implementation of IT program and data changes affecting financial IT applications[168] - Despite the material weakness, no material misstatements occurred in the financial statements, and previously released financial results remain unchanged[169] Remediation Plan This section outlines management's commitment and plans to address the identified material weakness in internal control - Management is committed to remediating the identified material weakness in internal control over financial reporting and is developing and implementing comprehensive remediation plans[171] Changes in Internal Control over Financial Reporting This section reports on any changes in internal control over financial reporting during the period - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal controls during the quarter ended June 30, 2025, other than the identified material weakness[172] Inherent Limitation on the Effectiveness of Internal Control This section acknowledges the inherent limitations of any internal control system in preventing all errors or fraud - The Company acknowledges the inherent limitations of any control system, which can only provide reasonable assurance against errors and fraud, and may be circumvented by individual acts, collusion, or management override[173] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information not included in the financial statements Item 1. Legal Proceedings The Company is currently involved in a securities fraud class action and a shareholder derivative action, both filed in 2025, alleging misrepresentation of business facts, inflated revenue, and breaches of fiduciary duties. The Company intends to vigorously defend itself but cannot predict the outcome or potential losses Putative Class Action Complaint This section details a securities fraud class action lawsuit filed against the company and its executives - On March 20, 2025, a securities fraud class action was filed against the Company, its CEO, and CFO, alleging failure to disclose material adverse facts, inflated revenue, and concealment of scrutiny from insurers, violating Section 10(b) of the Securities Exchange Act of 1934[176] Shareholder Derivative Complaint This section describes a shareholder derivative action filed against the company's officers and directors - On July 9, 2025, a shareholder derivative action was filed against officers and directors, alleging breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and gross mismanagement, seeking restitution and disgorgement of profits[177] Other Legal Proceedings This section confirms the absence of other material pending legal proceedings beyond those specifically disclosed - Other than the disclosed class action and derivative complaints, the Company is not a party to any other material pending legal proceedings[178] Item 1A. Risk Factors The Company faces significant risks including the adverse impact of new tariffs and trade barriers, the ongoing Tricare payment suspension affecting revenue and profits, substantial doubt about its ability to continue as a going concern, potential costs and adverse outcomes from pending litigation and regulatory investigations, and volatility in operating results due to fluctuations in tax obligations and deferred tax asset realization - New duties, tariffs, trade barriers, and retaliatory countermeasures could materially adversely affect the Company's business, increasing costs and reducing gross margin[179][180] - The ongoing Tricare payment suspension has already adversely impacted and may continue to impact the Company's revenues and profits[182][183] - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern, contingent on refinancing convertible senior notes or raising sufficient capital[184][185] - The Company may incur substantial costs and adverse outcomes from pending securities fraud class action, shareholder derivative action, and SEC/government investigations, potentially leading to significant damages, fines, or operational restrictions[187][188][191] - Fluctuations in tax obligations, effective tax rates, and the realization of deferred tax assets, influenced by factors like changes in earnings mix, tax laws, and valuation allowances, may result in volatility of operating results[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report during the period[195] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[196] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[197] Item 5. Other Information This section reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 Rule 10b5-1 Trading Arrangement This section reports on the adoption or termination of Rule 10b5-1 trading arrangements by directors and officers - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[198] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements, indemnification agreements, CEO and CFO certifications, and XBRL-related documents - Exhibits include the employment agreement for Steven Dyson, a form of indemnification agreement, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act sections 302 and 906), and various XBRL taxonomy documents[199] SIGNATURES This section formally concludes the report with the required signatures from authorized company officials - The report was duly signed on behalf of Zynex, Inc. by Daniel J. Moorhead, Chief Financial Officer, on July 31, 2025[201][203]